Tag Archive for: construction industry

Overview of the National Construction Code (NCC) 2022

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Various changes to the NCC are being implemented with new general requirements under the NCC 2022 to come into effect from 1 May 2023.

Some of the main changes include new liveable housing requirements, new residential energy efficiency and updated condensation mitigation, new fire performance requirements and the use of lead-free plumbing products.

Does the NCC 2022 Apply to My Construction Works?

The NCC 2022 will apply to construction contracts with applications for construction certificates issued on or following 1 May 2023 (subject to the transition periods outlined in the timeline below) and will be adopted by all states and territories (subject to any state and territory variations).

The NCC 2022 staged timeline is as follows:

1 October 2022: NCC 2022 Optional Adoption

  • Full NCC 2022 published.

1 May 2023: NCC 2022 Mandatory Adoption

  • General provisions come into effect (Except new energy efficiency and condensation and liveable housing).

1 October 2023: Transition Period Ends

  • New liveable housing requirements come into effect; and
  • New energy efficiency and condensation mitigation requirements come into effect.

1 September 2025: Transition Period Ends

  • Lead-free plumbing product requirements come into effect.

What Does This Mean for the Construction Industry?

Following their regulatory impact assessment, the Australian Building Codes Board (ABCB) have concluded that there are cost-effective improvements that will be implemented in the new code.

There will also be an improved structure and clause referencing system adopted which will include a Section-Part-Type-Clause system to improve consistency, user experience and online accessibility.

Energy Efficiency

There will be new energy efficiency requirements with a new minimum standard of thermal performance at 7 Stars NatHERS rating, compared to the previous 6 Stars NatHERS rating, to improve the thermal comfort of homes year-round.

There will also be a new annual energy use budget that provides a flexible approach to encouraging the selection of more efficient equipment. The annual energy use will be measured using a new ‘Whole of Home’ rating out of 100 which indicates whether the home meets the NCC budget. This rating will be separate from the NatHERS star rating assessment out of ten.

The options for demonstrating compliance with the performance requirements include using NatHERs accredited software, Deemed-to-Satisfy (DTS) elemental provisions, verification methods and performance solutions.

Fire Safety

There will also be changes implemented with regard to fire safety and the fire performance rating of building elements. The ABCB has considered stakeholder feedback in creating opportunities to integrate practical concessions whilst maintaining building safety. The main changes are additional concessions for minor, combustible building elements in section C2D10 (equivalent to section c1.9 in the 2019 code).

Plumbing Products

Changes have also been made to Volume Three of the NCC (Plumbing). These changes followed Macquarie University’s Lead in Plumbing Products and Materials Report which indicated that there is a possibility that Australia’s drinking water is currently susceptible to leaching from copper alloy drinking water products.

In response, the new code will require copper alloy plumbing products in contact with drinking water to contain less than 0.25% lead contact.

This will lead to major long-term health improvements for all Australians. Though, during the transition period between 1 September 2022 and 1 September 2025, plumbers may continue with the installation of existing products, provided that the products are certified under the WaterMark Certification Scheme.

Accessibility

Further, the new code aims to create more accessible housing and is based on the Silver Level of the Liveable Housing Design (LHA) Guidelines. The new rules aim to make Class 1a buildings (houses and townhouses) and Class 2 sole-occupancy units (individual apartments) easier to access and live in as well as being more cost-effective.

To Consider

It is important to review and consider the changes that are to be implemented in the new code.  The NCC 2022 may apply to your construction contract if the application for a construction certificate was made on or following the date on which the new code takes effect, which will be 1 May 2023 in the majority of cases.

For further information regarding the changes implemented in the new code, the preview of the NCC 2022 may be accessed through the following link: NCC 2022 .

 

 

 

Implied Contractual Terms for Payment

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You hire a builder to demolish and rebuild your house under a “cost plus” contract, meaning you are obligated to pay the builder’s costs plus a 10% margin. To make sure you know what you are paying for, you ensure the contract requires detailed and itemised invoices with every progress payment claim raised by the builder. The builder has one year to complete the house. What would you do when the builder goes over $1 million and 3 years past budget? Would you decline to pay progress payments which did not comply with the contract, because they lacked the itemised costing?

 

This was the case in Renbar Constructions Pty Ltd v Sader [2022] NSWSC 172. The Court considered whether the builder, Renbar Constructions, was entitled to recover the balance of the building costs incurred in performance of the contract. The Court also considered how much in damages the owner, Dr Sader, would be entitled to for defects, and the significant delay to the completion of construction.

In total the builder raised sixteen progress claims, a dozen of which were paid by the owner despite the progress payment claims being non-compliant with the contract, which required detailed costing. Later, a dispute arose about the true cost and value of the building works, the lengthy delay, and defects with the building works.

The Court found a gap in the contract. On one hand, the contract required the owner to pay the “price of the building works in the manner and at the times stated in the contract”. On the other hand, it required the owner to pay “progressively as claimed” by the builder; claims which needed to be accompanied by invoices for building materials and other documents to entitle the builder to payment. The gap in the contract was found in the circumstances of the case— the owner was obligated to pay for the building works, but the builder was not entitled to payment until a progress claim was issued. Did the contract entitle the builder to payment when the payment claims did not comply with the contract requirements?

The Court found that the contract must have had an implied term that required the owner to pay the price for the building work done within a reasonable time, even though no valid progress payment claims were issued by the builder. The Court may infer that an implied contractual term exists if it is fair, obvious, clear, necessary to give business efficacy to the contract, and not in contradiction with other terms of the contract.

Consequently, Dr Sader could not rely on the lack of a valid progress payment claim as a defence against payment of the balance of the price for the building works. Sader could (and did) claim damages for the building defects and delay as a breach of contract.

Litigation for construction matters can be costly and unpredictable. But this risk can be minimised with the clear and careful drafting of contracts although, as this case shows, even standard form contracts can result in disputes. If it seems a project is becoming contentious, it may be worthwhile to engage legal assistance sooner rather than later to understand your rights and obligations, and before a costly dispute arises.

Statutory duty of care – don’t get caught out by a poorly drafted claim.

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The Supreme Court’s decision in The Owners – Strata Plan No. 87060 v Loulach Developments Pty Ltd (No.2) provides useful insights into the newly created statutory duty of care by section 37 of the Design and Building Practitioners Act 2020 (NSW) (Act).

Recap of the Duty of Care

The Act was enacted in 2020 and introduced significant legislative changes to the building industry. One such change was the creation of a statutory duty of care owed by any person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects:

  • in or related to a building for which the work is done; and
  • arising from the construction work.

The Act states that this duty of care is owed to each owner of the land on which the construction is carried out. The duty of care extends to all subsequent owners of that land.

The duty of care operates retrospectively in that it applies to economic loss caused by a breach of duty of care if the loss first became apparent within the 10 years immediately before the commencement of the duty of care.

How to correctly plead a claim for a breach of the duty of care?

When the statutory duty of care was first enacted, there was uncertainty among the legal profession on how a claim for a breach of the statutory duty of care should be pleaded, and what elements and evidence will be required to successfully prove economic loss arising from a breach.

The Supreme Court in The Owners – Strata Plan No. 87060 v Loulach Developments Pty Ltd (No.2) has provided clarification on this matter.

Facts & Issues

In this case, the Owners alleged that there were a number of large defects in the works performed by the developer and builder, Loulach. The Owners claim was based on the alleged breaches of statutory warranties implied by the Home Building Act 1989 (NSW).

The Owners subsequently sought leave to amend their claim to also include a claim for an alleged breach of the statutory duty of care.

The Owners argued that the mere fact that there was a defect in the building, established that the defect was a result of the breach of the statutory duty of care, and had Loulach not been negligent, there wouldn’t be defects.[1]

Loulach opposed leave being granted to the Owners to plead its case in this way and contended that whilst there was no dispute that a duty of care existed, the proposed pleading did not properly articulate the breach of that duty.[2]

The Court agreed with Loulach and rejected the Owners’ position.[3]  The Court noted that the Owners’ argument posed difficulty as it was unclear what breach the Owners were alleging in relation to each item of the Scott Schedule.[4]

For instance, one of the defects in the Scott Schedule was identified as “Unit 5- Bathroom: Corrosion affecting the door jambs”. But what was the breach of duty alleged to have caused the corrosion? Was it:

  • installing the wrong PC item; or
  • installing the wrong lining; or
  • something else?

A similar difficulty was present in most of the 451 defects identified in the Scott Schedule.

Decision

The Court held that Act is designed to remove the hurdle for the Owners to establish that a duty of care is owed, and it is not intended to provide a shortcut manner in which a  breach of that duty might be established.[5]

In that sense, a party looking to claim a breach of the statutory duty, must also prove the other elements of a negligence claim in order to show a breach and then losses from that breach.

A claim for negligence, must satisfy the following elements:

  1. That a duty of care existed between the parties; and
  2. That the duty of care was breached; and 
  3. That the breach caused loss.

Section 37 of the Act simply answers the first element; however a party must also answer the balance of the elements in order to succeed on their claim for a breach of the statutory duty of care. There is no provision in the Act to suggest that a mere fact of a defect establishes breach.[6]

Furthermore, a claim for negligence also requires a party to identify the “risk of harm” and show that the person who owed the duty of care knew, or ought to have known of the risk of harm and failed to take precautions against a risk of harm that a reasonable person would have.

In this case, the Court was not satisfied that the Owners’ proposed pleading:

  • showed that the statutory duty of care was breached;
  • identified the specific risks that Loulach was required to manage; and
  • the precautions that should have been taken to manage those risks.

It was not sufficient for the Owners to simply assert a defect and allege that Loulach was required to take whatever precautions were needed to ensure that the defect not be present.

Therefore, the Court refused the Owners’ application for leave to amend their claim to include a claim for a breach of the statutory duty of care. It was also noted that the required degree of specificity may have been achieved if the Owner’s List Statement referred to the Scott Schedule and the Scott Schedule was revised to include further information regarding each defect, the relevant risk and what the Owners contend Loulach should have done in relation to that risk.[7]

Key Takeaways

The statutory duty of care established by the Act can provide an extremely useful remedy for parties such as the Owners, however, such a claim should be carefully drafted to avoid the risk of missing out because of a poorly drafted claim.

All three elements must be established for a party to succeed in a claim for a breach of statutory duty:

  • that a duty of care exists (this is automatically proven by existence of section 37 of the Act); and
  • that the duty was breached; and
  • that the breach caused harm (loss or damage).

We regularly assist parties which may find themselves either in the position of the Owners or Loulach. We can assist you with preparing your claim for a breach of the statutory duty of care, or help you defend a such a claim brought by an owner. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

 

 

[1] [20] – [22] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[2] [19] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[3] [23] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[4] [24] – [34] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[5] [35] – [36] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[6] [38] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

[7] [44] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

Remember your umbrella! Drafting umbrella contracts for a rainy day.

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This article focuses on risks for construction contractors and suppliers when agreeing to standing, purchase order or umbrella contracts and provides some tips on how to avoid or mitigate those risks.

“Standing”, “purchase order” or “umbrella” contracts are frequently used where:

  • the client engages, or intends to engage, a contractor or supplier across in multiple projects; or
  • where the quantity of works, goods or services or time when those works, goods or services are required is unclear or subject to change.

Umbrella contracts aim to settle a set of standard terms and conditions with which both parties are comfortable, with the variables such as quantities and time for performance set out in the purchase order later.

Purchase order contains additional adverse terms or terms that conflict with the umbrella contract

A risk in using umbrella contracts is that the client issues a purchase order which includes or appends an additional set of terms and conditions which are not agreeable to the contractor and/or conflict with the umbrella contract.  If the contractor commences performances in accordance with that purchase order or otherwise does not raise objection within a reasonable time:

  • a “battle of the forms” may occur, where which terms and conditions prevail becomes debatable; and/or
  • the client’s purchase order terms may be considered accepted due to the contractor’s performance of the works or services the subject of the purchase order[1].

Some ways that the risk can be avoided or mitigated include:

  1. Prevent inconsistency: Ensure that the umbrella contract contains a term which states that it will apply to the extent of any inconsistency with the purchase order.
  2. Settle form: Ensure that the umbrella contract contains a term which requires any purchase order issued to be in the form appended to the contract as an annexure (and ensuring that the purchase order issued aligns to that form).
  3. Minimise variables: Minimise the amount of variable information that will be subject to the purchase order. The parties should agree as many terms as possible via the umbrella agreement and leaving the purchase order less work to do.
  4. Contractor’s acceptance: Include a term in the umbrella contract that the purchase order will not become operative (i.e. an agreement on its terms reached) unless the contractor accepts the purchase order in writing. Then, do not accept the purchase order in writing unless the variable terms included in it (such as the time for delivery of goods) are achievable.
  5. Limits on liability: Ensure the umbrella agreement contains all necessary limits on liability – e.g. a cap on liquidated damages.

Creation of multiple contracts

It is not uncommon for an umbrella contract to contain a term to the effect that a separate contract is created upon issue (or acceptance) of each purchase order.  This is generally desirable when the umbrella contract is intended to operate as a standing agreed set of terms governing the parties’ relationship across multiple projects.

However, where such a term is included and multiple purchase orders are issued on the one project, such a term can:

  • create general difficulties in administering the contracts and enforcing rights under those contracts; and
  • impact the operation of security of payment legislation.

On the first issue, the parties would need to issue contractual notices with reference to various purchase orders.  For example, in the event of a delay event occurring which impacts multiple purchase orders a notice would need to be issued to the client with reference each separate purchase order, satisfying all relevant criteria under the umbrella agreement for such a notice.  By way of another example, a dispute between the parties may arise due to non-payment of various purchase orders or defects in goods or services supplied under various purchase orders that may need to be individually pursued using the relevant contractual dispute mechanism.

On the second issue, the security of payment legislation in NSW (and other States and Territories) does not permit a payment claim being served (and adjudication application being made) across multiple contracts.

If there is a clause in the umbrella contract stating that each purchase order will give rise to a new contract, the contractor must submit separate payment claims in relation to each purchase order and pursue separate adjudications on each payment claim.

This was highlighted in a case where Holcim pursued an adjudication application against Acciona for work on the Sydney Light Rail project where some 12,500 purchase orders had been issued.  The New South Wales Supreme Court determined that Holcim’s payment claim which encompassed several purchase orders was not a valid payment claim[2] and Holcim lost out on the benefit of an adjudication determination worth nearly $3M.  In this type of case, the issuing of purchase orders which created separate contracts resulted in commercial and administrative unworkability and prejudiced the subcontractor’s ability to pursue a large adjudication against the head contractor.

Whether or not the umbrella contract should contain a clause which provides that each purchase order issued will give rise to a new contract should be considered on a case-by-case basis.

[1] Both of these risks are discussed in our previous article on Samios Plumbing Pty Ltd v John R Keith (QLD) Pty Ltd [2019] QDC 237.

[2] Acciona v Holcim [2020] NSWSC 1330 at [40].